Allianz: so foul and fair a day

"Fair is foul and foul is fair". Shakespeare's witches had nothing on what Allianz is up against at the moment. The insurer said on Tuesday that its first quarter was better than fair - strong, even - but the share price tells a different story. The past few weeks have been foul. The shares have mirrored the bond markets' fall, dropping 14 per cent in a month.

Interest rates are the cause of all this fog and filthy air. Allianz's €665bn investment portfolio contains €593bn of debt. Being a conservative insurer, most of that is likely to be the sort of safe government bonds that have been sold off sharply in recent weeks. If there is a silver lining, it is that lower bond prices at least mean higher yields, so should help to ease some of the pressure on the life insurance division.

Like rivals, Allianz has to find assets to match the guaranteed rates offered to life insurance customers, although Berenberg notes that the company is better placed than others. Higher bond yields will at least make it slightly easier to meet those guarantees.

In asset management, those silver linings are harder to find. The woes of Pimco - by far the biggest part of that side of the business - are well known. Pimco suffered outflows of €68bn in the first quarter, although the impact on Allianz's assets under management was obscured by market moves and favourable exchange rates. Still, asset management profits dropped 14 per cent in the quarter. Allianz points out that monthly outflows from Pimco are declining. But less bad is as good as it gets for the moment.

Into the fog comes a new chief executive, Oliver Bate. As an internal appointment, he may not be inclined to shake things up. After all, the trends in the life and the property and casualty divisions look decent, with premiums rising at both. But his priority should be to erase the notion that Allianz, with its big bond portfolio and its big bond fund manager, is more than just a geared play on the bond markets. Proving that is where the battle will be lost and won.

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